Kalshi Loses in the Ninth Circuit as the Legal Fight Over Sports Contracts Escalates

Kalshi Loses in the Ninth Circuit as the Legal Fight Over Sports Contracts Escalates

For Kalshi, the central argument is that sports-related event contracts offered through a federally regulated exchange fall under the Commodity Exchange Act (CEA), placing them within the regulatory framework overseen by the Commodity Futures Trading Commission (CFTC).

State authorities see the issue differently. If a contract functions like a sports wager, they argue, it should not automatically escape state gambling restrictions simply because it is listed on an exchange operating under federal oversight.

The disagreement has now produced opposing decisions from two federal appeals courts.

On April 2026's reported timeline, the Third Circuit ruled 2–1 in Kalshi's favor in the dispute involving New Jersey. The court concluded that the CEA likely preempts the state's gambling laws as applied to sports-related event contracts traded on a CFTC-licensed exchange.

On August 28, the Ninth Circuit unanimously ruled against Kalshi in Nevada's case, affirming a lower court decision allowing Nevada to enforce its gaming laws against the company.

New Jersey has responded by asking the Supreme Court to review the Third Circuit decision. Its argument is that the conflict between federal appellate courts is no longer hypothetical. It has arrived.

The Supreme Court has not yet agreed to hear the case. But the filing marks a significant escalation because it asks the justices to address a question that could affect the legal foundation of the US prediction market industry.

Why New Jersey Chose This Moment

The timing of the petition is important.

New Jersey Attorney General Jennifer Davenport's office had already signaled that it wanted to wait for additional judicial decisions before asking the Supreme Court to intervene. In June, the state requested more time to file, explaining that expected decisions from the Fourth or Ninth Circuits, or from the Massachusetts Supreme Judicial Court, could help establish whether a genuine legal disagreement existed.

The Ninth Circuit's August 28 ruling provided precisely the development New Jersey had been waiting for.

The strategy reflects a basic principle of US appellate litigation. The Supreme Court is generally more likely to consider a case when different federal appeals courts reach conflicting conclusions on the same important legal question. Such a conflict creates uncertainty for lower courts, businesses, regulators, and the public.

New Jersey's position is straightforward. The state argues that companies should not be able to offer sports wagers without complying with state gambling laws merely by structuring those products as exchange-traded contracts.

Davenport's office has also emphasized that states across the political spectrum oppose the industry's attempt to operate outside their gambling frameworks.

That argument gives the dispute a broader institutional dimension. It is not simply a confrontation between one state and one company. It concerns the division of regulatory authority between federal institutions and state governments.

What the Two Courts Actually Decided

The legal disagreement centers on the meaning and reach of the Commodity Exchange Act.

The Third Circuit concluded that Kalshi's sports-related contracts likely qualify as swaps under the CEA. If that interpretation holds, the CFTC's federal jurisdiction may displace the application of New Jersey gambling law to those contracts.

This does not mean that every product offered by a federally regulated exchange is automatically exempt from all state laws. The question concerns the specific statutory framework and the contracts at issue.

The Ninth Circuit adopted a different approach.

Writing for a unanimous panel, Judge Ryan Nelson acknowledged that a broad interpretation of the word "swap" might encompass Kalshi's contracts. However, the court concluded that such an interpretation would not fit the wider statutory structure and would raise concerns under the major-questions doctrine.

That doctrine is relevant when courts examine claims that Congress has granted an agency broad authority over matters of major economic or political significance without sufficiently clear authorization.

In practical terms, the Ninth Circuit rejected the idea that the CEA should be interpreted so broadly that sports-related contracts become insulated from state gambling laws.

The court therefore upheld the lower court's decision permitting Nevada to enforce its gaming rules against Kalshi.

The distinction is consequential. Under the Third Circuit's reasoning, federal exchange regulation may protect certain sports-related contracts from state gambling restrictions. Under the Ninth Circuit's reasoning, that protection cannot be assumed.

Until the disagreement is resolved, companies face a legal landscape in which substantially similar products may receive different treatment depending on the jurisdiction.

More Courts Could Change the Picture

The dispute is not limited to two appeals courts.

Three additional federal appellate proceedings remain relevant, and their outcomes could influence whether the Supreme Court decides to intervene.

The Fourth Circuit heard Maryland's appeal on May 7 but has not ruled. The Sixth Circuit heard consolidated appeals involving Ohio and Tennessee on July 30, with decisions still pending.

The Second Circuit is also considering Kalshi's appeal after a New York district court rejected the company's case. It is weighing a related dispute involving Connecticut as well. In the Connecticut matter, a single judge declined to resolve the issue independently and referred it to a three-judge panel.

Separately, the Massachusetts Supreme Judicial Court heard arguments in May concerning an injunction against Kalshi. That injunction has remained stayed since February while the state court considers the matter.

The Massachusetts proceeding is not part of the federal appellate-circuit split. Nevertheless, its decision could contribute to the wider body of legal reasoning surrounding the company's business model.

These pending cases create two possible paths.

Additional appellate courts could agree with the Ninth Circuit, reinforcing the argument that states retain authority over sports-related contracts. Alternatively, they could adopt reasoning closer to the Third Circuit, deepening the conflict and strengthening the case for Supreme Court review.

They could also produce narrower decisions based on specific statutory language or procedural circumstances.

For Kalshi and its business partners, uncertainty is the common factor. The final legal position may depend not only on the Supreme Court but also on how several appellate courts define the limits of federal regulatory authority.

How Kalshi's Product Creates the Legal Challenge

Kalshi operates an event-contract marketplace in which users trade contracts tied to the outcome of real-world events. The legal controversy arises because sports-related contracts can resemble gambling products even when offered through a federally regulated exchange.

The distinction is not merely semantic.

A traditional sports wager is generally governed by applicable state gambling laws. An exchange-traded event contract, by contrast, may be presented as a financial instrument subject to federal commodities regulation.

The legal classification affects licensing, market access, enforcement authority, and the obligations imposed on the platform.

For example, if a sports-related contract is treated as a swap under the CEA, Kalshi can argue that the federal framework governs the transaction and limits state interference. If courts conclude that the contracts fall outside the relevant federal protection, state gambling rules may apply.

The central question is therefore not simply whether users are betting on sports. It is whether Congress's commodities legislation provides a sufficiently clear legal basis for treating these contracts as federally regulated instruments rather than products subject to ordinary state gambling restrictions.

That distinction could influence the design of future prediction markets, including the types of contracts platforms list, the jurisdictions in which they operate, and the legal structure through which they distribute products.

Where the Business Opportunity Meets Regulatory Risk

Prediction markets offer a potentially attractive business model because they connect users who hold different views about future events.

An event-contract platform can create value by providing a marketplace, matching counterparties, supporting execution, and establishing rules for contract settlement. If the platform attracts sufficient participation, it may develop useful liquidity and become a destination for trading specific event outcomes.

But market demand is only one part of the business equation.

A platform also needs legal certainty, reliable operations, customer trust, and a distribution strategy that can function within applicable regulations. If a product is available in one state but restricted in another, the company may face additional compliance costs and a fragmented customer experience.

That fragmentation can influence marketing, customer acquisition, broker partnerships, product development, and the economics of expansion.

The same problem applies to financial intermediaries. A broker may see demand for event contracts among its clients but remain reluctant to offer them nationally if the legal status varies across jurisdictions.

In that environment, compliance becomes part of the product itself. The ability to identify where a contract can be offered, which users can access it, and what restrictions apply may become a competitive advantage.

What the CFTC's Position Means

The CFTC has pushed back against the Ninth Circuit's reasoning.

Agency spokesperson Zach Fulton said the appeals court misread the statute and described the ruling as creating a circuit split that calls for Supreme Court resolution.

Kalshi has similarly maintained that the CFTC's regulations, as written, do not prohibit sports contracts. Company spokesperson Dani Lever said the business would seek further review following the Ninth Circuit decision.

The agency's involvement is more than a public disagreement over statutory interpretation.

In August, the CFTC invoked emergency authority under the Commodity Exchange Act to keep Kalshi's exchange open despite New York's attempt to shut it down in connection with a separate $36 billion lawsuit.

That intervention illustrates the federal regulator's willingness to defend its view of the exchange's legal position. It does not, however, settle the broader question of whether state gambling laws are preempted.

The distinction matters because regulatory support and judicial approval are not interchangeable. An agency may interpret its governing statute in a particular way, but courts ultimately determine the legal questions presented in litigation.

For businesses, this means that favorable regulatory signals may not eliminate litigation risk. A platform can have a federal regulatory argument and still face enforcement actions, injunctions, and restrictions in individual states.

Platform or Product. Why the Distinction Matters

Kalshi's future will depend partly on whether prediction markets develop into a broad financial-market infrastructure or remain a collection of individual products exposed to separate regulatory challenges.

A product-centered strategy focuses on specific contracts, including sports outcomes. Its commercial appeal depends on customer interest, market participation, and the ability to offer contracts that users want to trade.

A platform-centered strategy depends on something broader: the capacity to support a wide range of event contracts, attract liquidity, maintain reliable settlement processes, and connect users through a consistent marketplace.

The second approach could offer greater long-term flexibility. Yet it also creates a more complicated regulatory challenge if different categories of contracts fall under different legal regimes.

A platform cannot assume that legal approval for one type of event contract establishes the status of every other product. Sports, political, economic, and financial-market contracts may raise different statutory and regulatory questions.

The Supreme Court dispute could therefore influence not only the legality of sports-related contracts but also the way companies assess the relationship between federal exchange oversight and state-level regulation.

Even if the justices eventually resolve the central issue, platforms may still need product-specific legal analysis and jurisdictional controls.

Competition and the Importance of Distribution

The prediction market industry competes on more than contract design.

Distribution is central. Platforms need to reach users, establish trust, and provide a marketplace with sufficient participation to make trading useful. Partnerships with brokers and other financial institutions can potentially expand access, while sports sponsorships can increase public visibility.

But distribution partnerships can also expose businesses to legal uncertainty.

For a broker, the decision to offer event contracts involves more than estimating customer demand. It requires evaluating the regulatory status of the contracts, the platform's legal position, operational requirements, and the possibility that access could be restricted after a court decision.

For sports organizations, sponsorship arrangements involving prediction market companies can create reputational and commercial questions, especially when the legal status of sports-related contracts remains contested.

For competitors, the uncertainty presents both an opportunity and a risk. A company with a more conservative product structure or a different regulatory strategy might attract partners reluctant to assume the same exposure. However, no business can treat a competitor's legal difficulties as proof that its own products are automatically compliant.

The long-term competitive advantage will likely belong to firms that combine attractive products with strong legal controls, reliable technology, and distribution arrangements that can withstand regulatory change.

The Immediate Risks for Brokers and Financial Platforms

The most immediate problem is geographic fragmentation.

According to the reported legal position, Nevada, Michigan, and Washington have court orders restricting Kalshi's activity. New Jersey remains open under the Third Circuit ruling, while Massachusetts's injunction has been stayed pending review by its highest court.

These distinctions are not administrative details. They affect whether a company can serve customers, how it designs access controls, and what risks it assumes when entering a new market.

Even if the Supreme Court accepts New Jersey's petition, a final ruling would not be expected before its next term. Meanwhile, the company's response to the petition is due within 30 days, and the pending decisions from the Second, Fourth, and Sixth Circuits could alter the legal landscape before the justices decide whether to hear the case.

This creates a difficult planning environment for companies that depend on national scale.

A business cannot simply wait for a definitive Supreme Court ruling while continuing to assume that its existing distribution model will remain valid everywhere. Nor can it assume that a favorable decision in one jurisdiction will settle the issue nationwide.

The practical response is to prepare for multiple legal outcomes.

How the Dispute Could Affect the Wider US Market

The broader significance extends to the balance of power between federal regulators and state governments.

The United States frequently relies on overlapping regulatory systems. Federal agencies supervise particular markets or financial instruments, while states retain authority over areas such as gambling, consumer protection, and other locally regulated activities.

New financial products can expose gaps or ambiguities between these systems. Prediction markets are a clear example because they use exchange-based structures to offer contracts linked to events that may also fall within traditional state regulatory categories.

If the Supreme Court ultimately favors a broad interpretation of federal preemption, federally regulated exchanges could gain greater protection from certain state gambling restrictions when offering qualifying sports-related contracts.

If the Court adopts a narrower interpretation, states could retain a stronger role in regulating products that resemble sports wagering, even when those products are offered through a federally regulated exchange.

Either outcome could influence how financial technology companies structure new marketplaces. It could also affect how regulators approach innovation when existing legislation does not clearly address a product that combines characteristics of financial trading and gambling.

The case will not determine every question surrounding prediction markets. Other statutory, regulatory, and product-specific issues may remain. But the decision could establish an important boundary for future disputes.

What Businesses Should Do Now

Companies operating in or entering prediction markets should treat the current uncertainty as an operational issue rather than a distant legal question.

First, build jurisdiction-specific compliance controls. Platforms and brokers should maintain a current record of applicable restrictions, injunctions, and relevant court decisions. Access controls should reflect the actual legal position in each jurisdiction rather than relying on a general national policy.

Second, prepare for multiple judicial outcomes. Businesses should model what happens if the Supreme Court accepts the case, declines review, or ultimately adopts either interpretation of federal preemption. Product design, marketing budgets, and distribution agreements should not depend on a single assumed outcome.

Third, review contracts and partnerships. Brokers, payment providers, sports organizations, and technology partners should understand how regulatory changes could affect their responsibilities and commercial commitments. Agreements may need clear provisions addressing restrictions, suspension, and changes in applicable law.

Fourth, separate product demand from legal durability. Strong customer interest does not establish that a product can be offered nationwide. Market research should be evaluated alongside compliance costs, litigation exposure, and the ability to sustain distribution.

Finally, monitor the pending appellate cases. The Second, Fourth, and Sixth Circuits could change the shape of the dispute before the Supreme Court decides whether to intervene. The Massachusetts proceeding may also provide relevant context, even though it does not itself resolve the federal circuit split.

For institutional investors and commercial partners, the central lesson is simple. Regulatory clarity is not a secondary consideration in prediction markets. It is part of the foundation on which the business model rests.

Kalshi's legal battle has reached a decisive stage because federal courts now disagree over whether state gambling laws can restrict sports-related event contracts offered through a federally regulated exchange.

The Third Circuit's ruling favored Kalshi's argument that the Commodity Exchange Act likely preempts New Jersey's gambling laws in this context. The Ninth Circuit reached the opposite conclusion in Nevada's case, finding that a broad interpretation of the federal statute would conflict with its structure and raise major-questions concerns.

New Jersey's petition asks the Supreme Court to resolve that disagreement. The justices have not yet decided whether to hear the case, and other appellate decisions could change the picture before they act.

For Kalshi, the outcome could influence the legal foundation of its sports-contract business. For brokers and competitors, it could determine how confidently they can distribute event contracts across state lines. For policymakers, it raises a broader question about how federal oversight should interact with state authority when financial technology creates products that cross traditional regulatory boundaries.

The immediate future is unlikely to deliver a simple, uniform answer. Companies must operate with jurisdiction-specific controls, careful legal analysis, and contingency plans while the courts continue their work.

The ultimate significance of the case lies in what it says about innovation itself. A new financial product may challenge established categories, attract users, and develop a commercial market. But lasting growth depends on more than technology and demand. It also requires a legal framework that defines who has authority, which rules apply, and where the boundaries of the business truly lie.

Kalshi Loses in the Ninth Circuit as the Legal Fight Over Sports Contracts Escalates

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